This wonderful car with 144,000 miles blew a head gasket (whatever that means.) The mechanic is reluctant to make repairs as it is so expensive and with the mileage he fears other expensive repairs are likely to crop up. If I want to keep the car he suggests a rebuilt engine. (To get a rebuilt engine with lower mileage and trustworthy warranty I am looking at $6500 for engine and labor.) Help me figure out what is reasonable.

Both Hellokit and MCParadise are offering reasonable opinions. Personally I would go with MC and have the head gasket replaced (making sure the head is flat). Done right your Subaru should have many more miles and you will save money compared to replacing the car.

Fix the head gasket only. Make sure they used the revised gasket(eg don’t buy aftermarket parts) from Subaru.

$6500 on a likely $3000-$4000 car is not worth it. If you do decide on a rebuilt engine source it from ccr engines (they know what they are doing).

This problem is very common on this vintage of your engine 96-2000.

Here is a good explanation/opinion of the problem from a well experienced shop below. Please note if you have been driving around for a while(knowing or unknowing) with the symptoms you may have done some more serious damage to your engine.